Let’s say you just bought a certain stock — and it starts going up.
When do you sell? Is a 10% gain enough? 25%? Or do you hold out for a multi- bagger? At what point do you say, “I can’t risk the profit I’ve made; I’ve gotta sell.”?
How much is enough for you?
It’s not an issue of “enough”. People who know what they are doing perform valuations of the stocks they plan to buy. They try to estimate what the price should be and then look to buy stocks that are trading below that price.
People who don’t know what they are doing play the stock market like a craps table.
I tend to invest for the long term and don’t pay attention to short-term market fluctuations. In fact, the last time I sold anything was a couple years ago when I was unemployed and needed some cash. I don’t even remember if I made a profit on it.
Day trading by the seat of your pants on unbridled instinct and intuition may be an amusing hobby, but don’t expect to make any money off it. 
The following applies to speculation, or short-term holding.
If you think that growth can continue, IOW if you think the stock is still undervalued by the market, then you stay in, regardless of how much you have gained. If you think that the stock is overvalued, then you get out, no matter whether you have reached some predetermined “gain” level, in fact, even if you have lost money. Thinking of your gain or loss as a component in the logic of holding is a bad idea- your personal performance has no relevance in the market.
It’s not a good question.
Let’s say you do have a stock that goes up 20%. For every time you sell, and watch it go down after that, there’s going to be a time you sell and watch it go up after that. If you could predict which one will happen, you don’t need to be asking.
Let’s say you have some magic formula that perfectly identifies whether a stock is undervalued, or overvalued. Your stock goes up 20%. Well, your magic formula is still telling you whether the stock is undervalued (hold or or buy more!) or overvalued (sell or short it!)
Really, you need to figure out what you want from the market. I basically don’t sell stuff. I’m in the market to fund my retirement. I don’t care what my stocks do.
[QUOTE=stolichnaya]
If you think that growth can continue, IOW if you think the stock is still undervalued by the market, then you stay in, regardless of how much you have gained. If you think that the stock is overvalued, then you get out, no matter whether you have reached some predetermined “gain” level, in fact, even if you have lost money. Thinking of your gain or loss as a component in the logic of holding is a bad idea- your personal performance has no relevance in the market.
[/QUOTE]
Why hold when you’ve made a tidy little sum? That’s just being greedy. (I know. “Greed works.” I saw it, too.) I say if you’ve seen enough profit to be satisfied with it, then sell. So what if it goes up some more? Take your money, pocket some profit, and then find something even more undervalued and re-invest, or put it into higher “quality”.
I’m asking here honestly because I don’t know. All of this has been purely OJT for me. I’ve been lucky enough to back a couple of winning horses, but lately I’ve been much more into mutual funds than individual stocks (ETF’s are looking more attractive, though).
But, what I’d really, really like to know is this: What determines when you sell your stock? And, I’m not talking about when you want to install that new jacuzzi and need the cash. I mean when you’ve held the stock for a while and X occurs (or a combination of A, B, M, Q, and W occurs), and you really don’t need the cash, but you believe that the stock has reached its peak.
I don’t believe that holding stock just for holding’s sake is any kind of virture. I mean…the idea is to make money, right? Otherwise, might as well just put it into a savings account at approx 6% and ignore it. I just don’t think it’s a good idea to ignore your own stock.
So…what is it, and in what proportions? X volatility plus Y Price-to-Earnings minus Insider Sales times Competitive Advantage = what?
When is it time to divest?
I’m no expert. And you’re right, opportunity cost does enter into it. Like you said, if you feel that an alternate investment will make more money, then you should switch.
I guess I don’t understand your question. If you want a system to determine when a stock has reached its peak, there are millions, most saying different things
There are many other things that factor in a decision like this, including your risk tolerance, the volatility of the stocks in question, whether you are managing a retirement portfolio or looking to make some extra cash speculating with money you can afford to lose, etc.
Generally, I am suspicious of “formula”-based analysis, because the value of a company is only partially based on quantifiable value. In the end, the stock is worth what the market says it’s worth, even if valuations say it is worth considerably less or more. So my system is, if I think the market will accept a higher price based on all of the information at my disposal and whatever insight I’ve fooled myself into thinking I have, I’ll stay in.
There are probably a ton of people that thought google was at a good place for divesting at 200. It’s more than doubled since then, with a lot of short-term ups and downs along the way. Speculation is for the cojone-d, I only do it for fun.
You’re missing the point. There is no rule, unless you are a technician or a day trader. If you have a nice quick run up due to some great news, maybe take a bit off the table. But that depends on how much you have in since you don’t want transaction costs and taxes to eat up your gains. I have stocks that have doubled twice and I have others that I have bailed on after 10-15% gains.
The bottom line is that you need to have a value for your stocks. That tells you when to get out. You also need to have a point where you cut and run if you were wrong. If there were hard and fast rules that always worked, everyone would be a millionaire.
[QUOTE=Rysdad]
Why hold when you’ve made a tidy little sum? That’s just being greedy. (I know. “Greed works.” I saw it, too.) I say if you’ve seen enough profit to be satisfied with it, then sell. So what if it goes up some more? Take your money, pocket some profit, and then find something even more undervalued and re-invest, or put it into higher “quality”.
I’m asking here honestly because I don’t know. All of this has been purely OJT for me. I’ve been lucky enough to back a couple of winning horses, but lately I’ve been much more into mutual funds than individual stocks (ETF’s are looking more attractive, though).
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The fact that stocks aren’t horses and this isn’t gambling is part of the issue. The fact that you can’t delude yourself like a gambler is another.
Stocks should be part of a portfolio and it doesn’t really matter much what the individual stocks are doing. If you spend $10,000 to buy 4 stocks and 3 or them tank, it is not appropriate to sell the one that went up say, 25% and call it a win because it isn’t. It only matters what is happening to the portfolio overall and a well performing stock may continue to perform well for years to come. You can’t start selling them individually and looking at the gains or losses in isolation. That is indeed what gamblers do. Gamblers also subscribe to related fallacies such as believing things are “due” after repeated wins or losses and that is not the case.
[QUOTE=Shagnasty]
The fact that stocks aren’t horses and this isn’t gambling is part of the issue. The fact that you can’t delude yourself like a gambler is another.
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What delusion? And stocks are gambling. Unless you’re aware of one out there that guarantees a return. (I’m not talking about treasuries here.)
:: blink ::
It sure does matter what the individual stocks are doing. Even a widely diversified portfolio can be dragged down if a significant portion of the equities it holds sucks.
But whoever said anything like that, anyway? Hopefully, I would have sold the three losers before losing my shirt. The gainer I might hold a while longer…or sell if it has reached a comfortable profit. If the gainer has made more than the losers, then, by definition, it’s a win.
Besides…one winner can offset three losers if you’re really lucky. But that’s not something you can count on.
Of course the overall portfolio matters. However, a well-performing stock may cease to be so well-performing and just begin to wallow around without gaining or losing. My question is at what point do you sell it?
You certainly can. Why shouldn’t you? I believe it’s absolutely the correct thing to do. “Owning” stock means nothing. You haven’t actually made money (disregarding dividends) until you sell it.
I hold to no such theory. What I’m asking about is, as I’ve said, an exact (or, as exact as possible), definition as to how to determine when a stock has run its course and it has become time to unload it.
Hm.
Maybe I’m phrasing this wrong. How’s this:
What’s the best way to determine the valuation of a stock?
Aren’t there as many millions out there telling me what the stock is worth…or at least what the target price is?
I know its actual, present worth is whatever it trades for. Then there’s the “Moderate Buy, Market Underperform, Overweight, Strong Sell”-type blurbs that are pretty easy to find.
Maybe I should shrink my question further: Is (are) there a certain, specific market forecasting guru(s) that you find most reliable re: stock prices and futures?
[QUOTE=Rysdad]
What I’m asking about is, as I’ve said, an exact (or, as exact as possible), definition as to how to determine when a stock has run its course and it has become time to unload it.
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When it’s worth less than you paid for it. Unfortunately, by then it’s way too late.